Additional 2011 Projections

Last week we looked at legal market projections from Hildebrandt Baker Robbins in their 2011 Client Advisory.

That report also contains additional data compiled by the Citi Leaders Council Survey and Thomson Reuters.

The Citi Leaders survey comprised 48 large law firms and found:

• Respondents project using AFA's for 15.4% of their firms' revenues in 2011, up from 12.9% last year.

The Thomson Reuters survey polled the leaders of 78 large law firms last year as part of their Legal Executive Briefing and found:

• 96% of respondents indicated they expect increased use of AFAs during the next three years.

• 89% forecast increased use of pre-matter budgets.

• 71% expect increases in their use of teams to manage matters/projects.

• 61% percent expect increased use of contract lawyers.

• 55% expect increased use of non-lawyer project managers.

• 43% expect an increase in the outsourcing of routine legal activities.

These are significant expectations for evolving business models, and the Hildebrandt Client Advisory summarizes these projections with this:

"We fully expect that the experimentation with new service delivery models and new pricing strategies that we have seen over the past couple of years will continue and expand in 2011. Thus, we believe that firms will continue to focus on project management skills and other techniques for improving efficiency, including the outsourcing of legal and non-legal aspects of their work and the use of technology to automate workflows and to reduce the number of staff required."

Re-Thinking The Service Delivery Model

Professional services and firm management consultants Hildebrandt Baker Robbins released their 2011 Client Advisory for the legal market.

Their comprehensive surveys highlight perceived legal trends in 2010, as well as the trends they believe will impact the market this year. Their discussion of Management Challenges opens with two telling paragraphs:

"Much has been written over the past two years about the changing delivery model for legal services and the need for firms to re-think their underlying assumptions about work processes, pricing, infrastructure, and administrative support. While some of the bold predictions of revolutionary changes in the structure and work of firms have no doubt been overblown, there is no denying that the market is changing and that some firms are beginning to use the redesign of their service delivery models to good competitive advantage."

"As Mike Dillon, the General Counsel of Sun Microsystems has observed, “The reality is that we are in the early stages of a seismic shift in the traditional cost and delivery model for legal services. I see it every day in my interactions with the law firms that support us and in my discussions with peers at other companies.”

The report notes that while the billable hour is still considered the "normal" model, "there has clearly been a noticeable increase in the use of AFAs (alternative fee arrangements) and the evidence suggests that this trend will continue in coming years."

The Hildebrandt survey encompassed more than 200 companies, and looked at 2009 actual number along with expected 2010 numbers and found:

• 41 percent indicated they had used contractually fixed fees in 2009 for up to 10 percent of their outside legal work.

• 20 percent also reported they had used contingency fees for up to 10 percent of their outside legal work.

• 19 percent indicated they had used value or incentive billing.

• 8 percent stated they had used portfolio pricing (i.e. the use of fixed fees for a series of projects or cases or for projects occurring).

• 61 percent projected an increase in the use of contractually fixed fees in 2010.

• 55 percent projected increased use of value or incentive billing.

• 45 percent projected increased use of contingency fees.

• 36 percent projected increased use of portfolio pricing.

The Hildebrandt survey certainly seems to indicate that alternative models have moved beyond simply gaining traction; they seem now to be part of the permanent landscape.

New Models for Legal Education

The recent trends in the legal world (e.g., an emphasis on project management, a bottle neck for new associates, growing demand for alternative pricing models) all involve not the practice of law, but the business of law.

Responding to those shifts, New York Law School and Harvard Law recently teamed to spearhead an initiative to reevaluate the way future lawyers are educated.

The American Lawyer reported that 75 law school deans, legal educators and lawyers gathered April 9th and 10th for a two-day conference called "Future Ed: New Business Models for U.S. and Global Legal Education".

In general, the two themes that emerged were 1) the need to augment existing curriculum and, 2) the possibilities of creating alternative curriculum.

In terms of augmenting existing curriculum, the consensus was a heightened emphasis on the practical skills clients require.

• Business Management Skills

• Financial Literacy

• Executive Communication

In a forceful concurrence with this idea, Chester Paul Beach, associate general counsel of United Technologies Corporation "hammered home the need for more real-world training. To cut down on legal costs, Beach said, his company absolutely will not pay for first- or second-year associates because "they're worthless." Lawyers need more "skill development" in school because, especially amid the current economic downturn, businesses are "not going to pay for people who can't add value."

The other theme to emerge was alternative education models, which might include:

• Accelerated Programs

• Experiential Learning

• Distance Learning

• Specialized Schools

The collective agreement here was that "there should be "multiple futures" to legal education. Every school can't be Harvard, and every school shouldn't follow the same system, said Joseph Altonji, from consulting firm Hildebrant Baker Robbins. Schools should specialize, he said, "because we need different kinds of practitioners."

"Altonji added that a model based purely on grades and LSATs for all graduating law students embarking into various careers "is just not working today."